How our ‘do nothing’ Congress can help US-China trade relations

Scott Lincicome

Scott Lincicome is an international trade attorney at White & Case, LLP in Washington, DC. He has extensive experience in trade litigation before the United States Department of Commerce, the US International Trade Commission (ITC), the US Court of International Trade and the World Trade Organization's (WTO) Dispute Settlement Body. He has also advised corporate and sovereign clients on US bilateral and regional trade agreements and unilateral trade policy, as well as WTO matters, including accessions, compliance and the Doha Round of multilateral trade negotiations.

In 2008, Scott served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. In that capacity, he organized the campaign's trade policy team, routinely advised the campaign on international trade matters, and spoke publicly on the campaign’s behalf.

Prior to joining White & Case, Scott worked from 1998 – 2001 as a research assistant with the Cato Institute’s Center for Trade Policy Studies in Washington, focusing on US international trade law and policy.

Scott has a BA in Political Science from the University of Virginia and a JD from the University's School of Law. He is a frequent contributor to the National Review Institute's Media Malpractice Program, and his work has been featured in several online and print publications, including the Los Angeles Times, the Detroit News, the South China Morning Post, RealClearWorld and RealClearMarkets. Scott is also the co-author of the 2009 Cato Institute Study, "Audaciously Hopeful: How President Obama Can Help Restore the Free Trade Consensus."

Congress will soon consider legislation to fix a pillar of the president’s China trade policy that has been ruled illegal by federal courts and the World Trade Organization. The bill’s passage will please the White House and the domestic industries and unions that have used the policy to deter foreign competition, but it will do little to solve the underlying flaws in the administration’s approach to China trade. Fortunately, there is a better way forward, and it simply requires Congress to do what it does best: nothing.

In December the U.S. Court of Appeals for the Federal Circuit (CAFC) ruled that the Department of Commerce has no authority under existing law to impose anti-subsidy or “countervailing” duties (CVDs) on imports from China, Vietnam and other countries deemed “non-market economies” (NMEs) under the U.S. anti-dumping law. Commerce’s longstanding policy was not to apply CVDs to such imports and instead remedy unfair subsidization by state-directed economies through anti-dumping measures. Commerce reversed course in 2007, but after years of litigation the court ruled that Congress had ratified the agency’s previous policy, and thus that countervailing duties cannot apply to NME imports until the law is amended.

The court’s ruling rocked the White House because it invalidated the president’s primary approach to countering allegedly “unfair” Chinese subsidies. In a January letter, U.S. Trade Representative Ron Kirk and Commerce Secretary John Bryson pleaded with Congress to quickly pass legislation applying the CVD law to NME imports and salvaging the 24 final CVD orders and seven pending investigations that had been unlawfully instituted since 2007. Unless Congress does so before the court’s ruling becomes final, they argued, the existing duties and pending investigations will have to be terminated, and myriad American companies and workers will suffer an onslaught of unfairly subsidized imports.

Congress is expected to rescue the president, but the “fix” will create far more problems than it solves. First, retroactive application of the revised CVD law to existing orders will cause a legal firestorm, as aggrieved parties sue to recover the millions of dollars in duties that, prior to 2012, the U.S. government had no lawful authority to collect.

Second, the legislative fix will do nothing to resolve the underlying problems with the administration’s current policy. The U.S. Court of International Trade and the WTO’s Appellate Body have ruled that combined duties on NME products are artificially high because alleged subsidies are offset twice — once in the CVD calculation and again in the dumping calculation. Legislation will not solve this “double counting” problem, and Commerce itself has admitted that a proper solution could be impossible. Chinese and Vietnamese imports will thus continue to be unfairly penalized, leading to more disputes and exposing U.S. exports to WTO-sanctioned retaliation.

Third, the policy will irritate U.S.-China trade relations and keep the United States on the defensive in bilateral negotiations. The administration has many legitimate complaints against distortive Chinese trade practices, but the CVD/NME issue — and the United States’ refusal to comply with adverse court and WTO rulings — undermines those concerns.